The wall is being built

First it seemed like Powel was reading my blog and now it's Chinese authorities lol! Just after I mentioned to watch for a Chinese stimulus package they announced one and now there's talk that a trade deal with the US is close, both of which helped fuel the rally this week. Perhaps this is why the market has been able to shrug off  bad earnings reports and embrace good ones. That's a nightmare situation for the bears and they've been taking it hard up the ass. Up until the last couple of days the put/call ratio was high throughout all of January. That tells me traders/hedgers have been fighting the the rally rather than embracing it. We saw AAII sentiment go from 1.3 bulls to bears to 1:1 bulls to bears despite the market being higher from last week - another sign of the rally not being embraced. Fund flows have been negative year to date despite the very strong start to the year - yet another sign the market has not been embraced. Now, mind you all of this can change in an instant but so far it suggest this rally has staying power i.e. any weakness would not be substantial.

Here's a chart that shows how margin debt plunged to the degree not last seen since the heart of the 2008 crisis.



This is a medium to long term bullish chart because it shows a significant degree of capitulation at the December low, admittedly notably more so than I had thought. Although November 2008 was not the final bear market low it was close to it and buying at that time would have paid off big time. Does this mean then that we could see a retest of the December lows in the near future? I wouldn't hold my breath. Back in late 2008 early 2009 it was pure economic chaos. We are far from that environment right now.

Bottom line: Wall of worry behavior with the market is back for now but it's always tough to chase after such a relentless move. If the sentiment dynamics don't change much I would expect any pullbacks to be relatively shallow.